I am a Senior Fellow with the Foundation for Government Accountability, as well as the Massachusetts-based think tank Pioneer Institute. I am the editor and a co-author of the book The Great Experiment: The States, The Feds, and Your Health Care (2012) . My research has appeared or been cited widely including in the Wall Street Journal, The New York Times, Fox News and The Boston Globe. Prior to joining Pioneer, I spent time at the Heritage Foundation as a Health Policy Fellow. I also worked in the Massachusetts State Senate for Scott Brown and as a Senior Legislative Aide in Governor Mitt Romney’s Office of Legislative Affairs. I hold a MPP from Harvard University’s Kennedy School and a BA in Political Studies and Economics from Gordon College.

The author is a Forbes contributor. The opinions expressed are those of the writer.

In a completely overlooked news story by the national healthcare media, the Democratic Governor of Connecticut, had asked the federal government for flexibility to tighten eligibility of its Medicaid program in order to save some $50 million. The Malloy Administration sought a waiver last summer because it was worried about skyrocketing enrollment and the number of college-aged children on the program. On March 1 the federal government formally rejected their request. The media has fixated on Republican Governors’ decisions to expand Medicaid, often writing with disbelief that any reasonable person would ever consider not expanding. (Avik has written on many good reasons before.) Yet, the story in heavily Democratic Connecticut should prove that there are underlying fiscal issues with Medicaid. These pitfalls transcend party lines, regardless of who is paying the bills, and they highlight the heavy hand D.C. retains by denying state flexibility.

How Did Connecticut Get Here

According to Arielle Levin Becker from The Connecticut Mirror, in 2010, Connecticut expanded coverage through a program called Medicaid for Low Income Adults (LIA) for adults without minor children, but enrollment has been much higher than anticipated. The Administration believes that some families who are able to pay for coverage for their young adult children were dropping them onto the free program instead, thereby crowding out private coverage and fleecing taxpayers in the process.

The heavily Democratic state legislature passed a budget last year built on the savings assumptions from the Governor’s proposed eligibility changes. The plan would have imposed a total asset test of $10,000, and “count parental assets and income above 185 percent FPL for individuals ages 19 through 25 who live with or are claimed by one or both parents as a tax dependent.” The changes would have reduced coverage for 13,381 individuals for one year.

CMS rejected the request with the rationale that the change was, “…not consistent with the general statutory objective to extend coverage to low-income populations.”

Remember, this is not in an eligibility category currently required by federal law. In fact, most of these individuals could be on their parents’ insurance, since they are under the age of 26. While these individuals do fall under the ACA expansion starting in 2014, the message communicated is clear, “once you expand, there is no turning back.”

As the state is dealing with other fiscal shortfalls, Connecticut now faces a $163.7 million deficit.

The Nutmeg State was paying for 50 percent of the cost of this program. Even with the federal government promising to pay significant portions of the cost for new expansion under the ACA, this experience should worry federal taxpayers who will pick up the additional tab as crowd-out takes hold. It also demonstrates the current weight that Medicaid is placing on state budgets that is surely to be felt even more acutely under the ACA, even if the state share is only 10 percent.

Blue-State Buyout on Medicaid

In his budget proposal released earlier this year, Governor Malloy proposed moving 40,000 adults with children between 133 percent to 185 percent FPL, currently enrolled on a program called the HUSKY plan, onto the state-based exchange with a subsidy starting in January 2014. The administration is projecting savings of $66 million over two years. The move would allow for more flexibility in product design, and draw in additional federal dollars.

This move highlights a much bigger shift in blue-states from state taxpayers to federal taxpayers. These states, that have historically robust Medicaid programs, plan to offload the cost of these populations onto federal taxpayers. The Heritage Foundation took a look last week at this issue and found that many blue states will come out way ahead on this front.

Connecticut to HHS: ‘enough is enough’ With New RegulationsEven states that are 100 percent on-board to implement the ACA are finding it impossible to stay on top of and compliant with all the new regulations. So Connecticut has found a new coping strategy: just ignore the new ones.

Kevin Counihan, Connecticut’s exchange CEO (and former employee of the Massachusetts Connector) was quoted as saying:

We have to draw the line in the sand at some point…If they keep adding new regulations, I’m sorry. We have to suddenly say, ‘enough is enough’

Counihan, “warned that Connecticut’s exchange, which is supposed to be up and running on Jan. 1, won’t be perfect. He predicted it will take three to four years to iron out problems.”

This is even as,

Connecticut is ahead of the pack when it comes to qualifying for federal funding. It is one of six states that already received five grants to build its exchange, according to HHS’ website. Last summer, Connecticut received more than $107 million that’s been used to hire staff and consultants and develop an information technology system that’s expected to serve more than 100,000 people.

The State has now received $115 million for the exchange, in addition to being part of a $44 million New England regional exchange grant. I guess the federal government is finding out money can’t guarantee compliance.

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CT is swirling the drain. It’s uninsured problem is made up mainly by illegals…close to 70 per cent. It’s not a big state and it’s losing it’s manufacturing and big business base. Handing out free healthcare, housing, food and special education services to one million illegals will bankrupt the system. Those who seem to think unchecked illegal immigration does not cause problems and serious ones at that truly have their heads buried in the sand. If improvised uneducated crime ridden populations move en mass…..their problems come with them.